Jeff Schmid, President of the Kansas City Federal Reserve, stated that the Treasury Department’s expanded buyback program does not interfere with the central bank's monetary policy. He emphasized that these liquidity operations and Fed policy operate independently, ensuring the Fed maintains control over its objectives.
Treasury Secretary Scott Bessent recently increased the size of buyback operations for long-dated securities. The volume per operation doubled from $2 billion to at least $4 billion, with specific 10-to-20-year security buybacks potentially reaching $6 billion.
Data shows that dealers submitted over $520 billion in offerings to the program from the start of 2026 through mid-August. These buybacks are funded by issuing new Treasuries or using the Treasury General Account, which differs from quantitative easing as it does not expand the monetary base.
Schmid continues to advocate for tighter monetary policy to reach the Fed’s 2% inflation target, noting in August 2026 that current conditions are not sufficiently restrictive. Meanwhile, Fed Chair Kevin Warsh supports reducing the central bank's balance sheet and prioritizing market-driven outcomes.
While analysts agree the program does not impair the Fed's control over short-term rates, the buybacks may influence broader financial conditions. By shortening the average duration of government debt, the Treasury could exert downward pressure on long-term yields, potentially offsetting some Fed tightening.
